Neurocrine Biosciences, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. Unless noted otherwise, amounts are U.S. dollars in millions.
Business context
Neurocrine discovers and develops treatments for neurological and endocrine-related disorders and had no product sales. It reported 11 programs in development, including six in clinical development. Elagolix, its lead clinical program for endometriosis and uterine fibroids, was partnered with Abbott. The company also relied on collaborations including Boehringer Ingelheim, GlaxoSmithKline and Dainippon Sumitomo Pharma.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Revenue | $11.3 | $12.5; down 10% |
| Operating expenses | $13.1 | $10.6; up 24% |
| Operating income (loss) | $(1.8) | $1.9 |
| Net income (loss) | $(0.9), or $(0.01) per share | $2.9, or $0.05 per share |
| Operating cash flow | $(11.2) | $(8.6) |
| Cash, cash equivalents and investments | $200.1 at March 31 | $129.1 at December 31, 2011 |
Revenue consisted of collaboration-related sponsored research and development, milestones and license-fee amortization; the filing reports no revenue from product sales. R&D expense rose to $9.4 from $7.3, primarily with higher VMAT2 program costs, while G&A rose to $3.7 from $3.2. Operating margin was approximately -15.9%, versus 15.5% a year earlier; net margin was approximately -7.9%, versus 23.0%.
At March 31, current assets were $185.0 and current liabilities were $36.6 (a current ratio of approximately 5.0). Total liabilities were $66.3, including deferred revenues and deferred gain on the real estate sale; the filing does not report outstanding interest-bearing debt at quarter-end. Restricted cash was $4.3.
Cash, financing and material changes
- Operating cash use increased $2.6 year over year, which management attributed primarily to expanded R&D activities. Investing cash use was $45.2, mainly reflecting investment purchases, sales and maturities.
- Financing provided $83.3, primarily from a January public offering of 10.9 million shares at $8.10 per share, generating approximately $83.0 net proceeds. Shares outstanding increased from 55.3 million at year-end to 66.3 million at March 31.
- Cash and cash equivalents rose to $76.9 from $50.1 at year-end. Total cash, cash equivalents and investments rose to $200.1 from $129.1.
- Milestones and license fees were $9.2, unchanged year over year; sponsored R&D revenue declined to $2.0 from $3.3. Abbott revenue was $8.7 versus $10.1.
- Accumulated deficit was $725.6. No cease-use expense was recorded in Q1 2012, compared with $0.1 in Q1 2011. Other income was approximately $0.9 in both periods and included $0.8 of deferred real-estate gain in Q1 2012.
Outlook, commentary and risks
Management expected existing capital resources, investment income and future strategic-alliance payments to meet current and projected funding needs for at least the next 12 months, while cautioning that funding may not support all planned programs. It expected operating cash-flow losses for the foreseeable future and noted that additional financing could be needed. Approximately $37 million remained available under the $125 million shelf registration statement; no shares had been issued under the Kingsbridge committed equity financing facility as of March 31, 2012, and that facility was scheduled to expire September 15, 2012.
Abbott was responsible for third-party development, marketing and commercialization costs for the GnRH collaboration, but retained final decision-making authority and could terminate on 180 days’ notice. The company reported up to approximately $24 million in Abbott personnel funding through the end of 2012. Material risks include clinical-trial failure or delay, reliance on collaborators and external manufacturers, the need for future financing and potential dilution, regulatory and competitive risks, and the possibility that candidates never reach commercialization. The filing also states that Phase II results for CRF1 antagonist 561679 in major depressive episodes showed no benefit over placebo. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress, results and timing for elagolix, the Phase II VMAT2 program and other clinical candidates; confirm how development costs and responsibilities are allocated with collaborators.
- Cash burn, investment balances and the assumptions supporting management’s at-least-12-month funding assessment, including expected collaboration payments.
- Potential dilution and financing capacity following the January offering, including remaining shelf availability and the CEFF’s expiration and conditions.
- Whether collaboration revenue, including deferred license-fee amortization and sponsored research reimbursements, changes as agreements and development periods progress.
- Clinical, regulatory, intellectual-property and collaborator risks, including the stated negative Phase II result for 561679 and the status of indiplon.